Experts say loan guarantees good for economic development

Experts say loan guarantees good for economic development

When it comes to government financial assistance to businesses, a loan guarantee is better than a loan or a subsidy, says Charles Cirtwill, executive vice president of the Atlantic Institute for Market Studies.

Cirtwill was reacting to the announcement Wednesday that the Liberal government is providing three loan guarantees worth a total of $50 million to Miramichi-based Atcon Construction Inc.

“It could be worse … You have protected the taxpayers to a certain extent,” Cirtwill said Wednesday. “They have put off this obligation and as long as things go well then it should be okay.”

He said loan guarantees have a better track record than loans or grants.

“They don’t seem to go sour as often,” he said.

He said the reason for that is that companies that get loan guarantees are usually in better shape than companies that needs loans or grants.

The Opposition has raised the issue of limiting executive salaries and bonuses for Atcon now that it is getting so much government financial assistance.

But Cirtwill cautioned against such restrictions.

“If you want to put your money at risk, the best thing you can do is chase away competent management,” he said.

“Remember, you get what you pay for.”

Cirtwill said that if the Tories were in power they would probably have also helped Atcon with a loan guarantee.

He also said the no-compete-in-New Brunswick clause in Atcon’s financial assistance is very interesting.

That allows the government to say it is keeping the playing field even in the province, said Cirtwill.

But the danger is that the move may affect free-trade agreements, he said.

“It is not that far from a buy-New Brunswick clause,” he said. “It is a toe down the hill of the slippery slope.”

Denis Losier, chairman of the New Brunswick Business Council, said in a statement Wednesday that loan guarantees from the provincial government to core companies are timely and welcome.

He said it’s critical and appropriate for the government to provide such support in the current economic climate.

“A loan guarantee is not an expenditure and does not deprive education, health or any other public services of needed funds,” said Losier, a minister of economic development in the former McKenna government.

“Companies that receive loan guarantees still have to arrange for a loan from a bank or other financial institution and the loans are paid back with interest.”

He said the risk to the taxpayer of the company not repaying the loan is justified in the interest of economic development and job protection.

Losier said the council is concerned that core businesses based in this province not become permanent victims of the recession.

The federal government and other provincial governments are providing the same kind of assistance to companies, he said.

Last December, the business council convened a forum on the economic environment that led to a call for the provincial government to take the steps necessary to ensure that as many New Brunswick companies and jobs as possible are maintained through the current economic crisis, said Losier.

That will ensure the province is positioned to emerge from the recession in stronger shape, he said.